Aggarao v. MOL Ship Management Co., Ltd., 675 F.3d 355 (4th Cir. 2012)
Plaintiff seaman, a citizen of the Philippines, sued defendants, a ship’s owner/operator (“World Car”), a charter party (“Nissan”), and a crew company (“MOL”), for, among other claims, maintenance and cure in connection with severe shipboard injuries he sustained aboard the M/V Asian Spirit in the Chesapeake Bay near Baltimore. The U.S. District Court for the District of Maryland dismissed the case for improper venue, finding that arbitration was required in the Philippines. The seaman’s motion for preliminary injunction for maintenance and cure in the U.S. was denied as moot. The seaman appealed.
In connection with his employment on the Asian Spirit, Plaintiff signed a Philippine Overseas Employment and Administration Contract (“POEA Contract”), which contained a mandatory arbitration clause. The POEA Contract included a choice of law provision, which specified that any dispute arising under the contract shall be governed by the laws of the Republic of the Philippines. In addition, the POEA Contract provided that Defendant MOL was required to pay for the cost of the seaman’s medical care, board and lodging if his work-related injury or illness required medical treatment in a foreign port. Plaintiff then signed a separate contract (the “Seafarers Contract”), that incorporated the terms of a collective bargaining agreement (the “CBA”) that Defendants World Car and Nissan were bound to through an International Bargaining Forum Special Agreement.
Shortly thereafter, Plaintiff was aboard the Asian Spirit in Chesapeake Bay when he was crushed between a deck lifting machine and a pillar. He was airlifted to the hospital, where he was treated for injuries to his spinal column and cord, chest cavity, and abdomen. Plaintiff was completely paralyzed and, after enduring twelve surgeries, he was discharged from the hospital and transferred to a Maryland rehabilitation center for follow-up treatment, including physical and occupational therapy. Defendants settled Plaintiff’s hospital bills and advised that they were ready and willing to arrange for his repatriation to the Philippines and to provide further appropriate medical care in that country, but would have no further responsibility for, and would not pay for, any further medical care in the United States. However, Plaintiff’s U.S. doctor recommended that it was in Plaintiff’s best interest to remain in the United States to have the follow-up care that he required and additional operative procedures, including abdominal reconstruction. This doctor concluded that Plaintiff would need diligent medical care for the rest of his life, and would be unlikely to receive such care in a small village in the Philippines. Plaintiff declined to return to the Philippines for fear that he could not receive adequate medical treatment there.
Defendants moved to dismiss Plaintiff’s lawsuit for improper venue under Rule 12(b)(3) of the Federal Rules of Civil Procedure, pursuant to the arbitration clause contained in the POEA Contract. Plaintiff opposed the motion to dismiss, arguing that the arbitration clause was not enforceable. Plaintiff then filed a motion seeking a preliminary injunction compelling Defendants to provide maintenance and cure for him in the United States. The district court ruled that the arbitration clause was enforceable, and that Plaintiff was equitably estopped from pursuing in federal court his separate claims against World Car and Nissan, which were nonsignatories to the POEA Contract. Thus, the court dismissed Plaintiff’s claims for improper venue and denied as moot Plaintiff’s injunction motion.
On appeal, the district court’s judgment that the arbitration clause was enforceable and that the seaman had to arbitrate his claims in the Philippines was affirmed. However, the dismissal was vacated and the case was remanded for reinstatement, assessment of the injunction motion and for entry of a stay pending arbitration.
The court emphasized the following four jurisdictional factors in deciding whether to enforce the foreign arbitration clause under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“): that (1) there is an agreement in writing within the meaning of the New York Convention; (2) the territory for arbitration in the agreement is a signatory of the New York Convention; (3) the agreement arises out of a legal, commercial relationship; and (4) an American citizen is not a party to the agreement, or the commercial relationship has some reasonable relationship with one or more foreign states. Plaintiff acknowledged that factors two and four had been met, but nevertheless argued that factors one and three had not been satisfied. Specifically, Plaintiff argued that there was never an agreement to arbitrate (factor one) because the Seafarers Contract and the CBA superseded—or at least modified—the POEA Contract, and thus annulled the arbitration clause. Moreover, Plaintiff asserted that an agreement to arbitrate could not have arisen from a commercial legal relationship (factor three) because a seaman’s employment contract is exempted from the definition of “commerce” in the Federal Arbitration Act (the “FAA“), 9 U.S.C. § 1 et seq. Further, Plaintiff argued that he should be able to proceed against World Car and Nissan, even if he must arbitrate against MOL, as they are not signatories to the POEA Contract. He also argued that enforcement of the arbitration clause and the choice of law provision would contravene U.S. public policy by forcing him to waive his statutory claims under the Jones Act and the Seaman’s Wage Act.
Plaintiff suggested that the Seafarers Contract constituted a novation, superseding the POEA Contract. However, the Fourth Circuit held that the district court had accurately observed that nothing, either express or implied, in the Seafarers Contract suggested that the parties intended a novation. The Fourth Circuit noted that, in fact, the Seafarers Contract expected there to be an individual employment agreement separate from it. Further, the court held that the Seafarers Contract did not negate the arbitration clause because such negation must be explicit.
The court next assessed Plaintiff’s argument that the arbitration clause was not subject to the New York Convention because the POEA Contract did not create a commercial legal relationship. The court found that Plaintiff’s argument that § 1 of the FAA exempts employment contracts of seaman from the definition of commercial had been squarely rejected by at least three other Circuits, which have held that the § 1 exemption does not apply to the New York Convention.
Plaintiff also argued that the arbitration clause cannot divest the court of jurisdiction because the Seaman’s Wage Act entitled him to access to a federal court. The Ninth and Eleventh Circuits have addressed this issue, and have found that the New York Convention partially supplanted the Seaman’s Wage Act. The Fourth Circuit agreed and found that a federal court must refer to arbitration a seaman’s wage claim and any other claims subject to an enforceable arbitration agreement.
Next, Plaintiff argued that arbitration of his Jones Act and Seaman’s Wage Act claims in the Philippines would contravene U.S. public policy. Plaintiff contended that, pursuant to the choice of law clause in the POEA Contract, the arbitrator would apply the law of the Philippines to the exclusion of otherwise applicable American law, thereby denying his right to pursue his federal statutory claims. Plaintiff maintained that such a deprivation of his rights constituted a prospective waiver and contravened U.S. public policy. The Fourth Circuit decided that Plaintiff was not entitled to interpose his public policy defense to the arbitration clause until the second stage of the arbitration-related court proceedings, the “award-enforcement stage” — i.e., after an arbitration award has been made and the court is considering whether to recognize and enforce an arbitral award.
Finally, Plaintiff argued that, even if he was obliged to arbitrate his claims against MOL, the district court erred in concluding that he was equitably estopped from pursuing his claims against World Car and Nissan because they were not signatories to the POEA contract. However, the Fourth Circuit recognized that a nonsignatory to an arbitration clause may, in certain situations, compel a signatory to the clause to arbitrate the signatory's claims against the nonsignatory despite the fact that the signatory and nonsignatory lack an agreement to arbitrate. In this case, the Fourth Circuit found that Plaintiff was raising allegations of substantially interdependent and concerted misconduct by the nonsignatories and a signatory to the contract. While Plaintiff did not allege pre-existing collusion, the court found that his claims against Defendants all arose from one incident, and all relied upon the actions of the other Defendants and implicated the POEA Contract. Thus, the court held that each of Plaintiff's claims fell within the scope of the arbitration clause and that Plaintiff must arbitrate his claims against the signatory MOL as well as those claims alleged against the nonsignatories Nissan and World Car.
Although the Fourth Circuit affirmed the district court's determination that the arbitration clause was enforceable, the court rejected the lower court's procedural disposition of the case — i.e., dismissal of the complaint with prejudice and denial of Plaintiff's injunction motion as moot. The Fourth Circuit determined that the district court was not divested of jurisdiction once it concluded that Plaintiff’s claims were subject to arbitration in the Philippines. First, the district court was not constrained to dismiss the case because Plaintiff's public policy defense was not subject to arbitration and he would not be able to pursue that defense until after an arbitration award had been made. Second, the district court had the authority to assess whether Plaintiff's injunction motion should have been entertained. Defendants maintained that the injunction motion sought not to preserve the status quo, but to demand relief on the merits of Plaintiff's maintenance and cure claims. However, the Fourth Circuit noted that the status quo to be preserved by a preliminary injunction is not the circumstances existing at the moment the lawsuit or injunction motion is filed, but the “last uncontested status between the parties which preceded the controversy.” The court held that sometimes it is necessary to require a party who has recently disturbed the status quo, i.e., such as when Defendants terminated maintenance and cure, to reverse its actions in order to restore the status quo ante. Therefore, the district court was directed to consider the issue of Plaintiff’s health if he did not continue to receive the proper care, because if he died through lack of adequate care, he would not be able to return to the status quo even if the arbitration proceedings ruled in his favor. Moreover, regardless of an injunction ruling, the case was to be stayed pending arbitration to ensure he could later assert his public policy defense to the arbitration clause. The Fourth Circuit, therefore, remanded the case to the district court for reinstatement, to make a determination as to whether the injunction should be granted, and for entry of a stay pending arbitration.